Employers, unions, or other group entities that provide their members (e.g., employees, union members) with health benefit plans typically do so under either fully-insured plans or self-insured plans, including but not limited to fully self-insured, level-funded, and minimum premium plans. Plans for employees who are entitled to benefits under a Collective Bargaining Agreement may access benefits through various funding arrangements, including but not limited to employer-sponsored plans, multiple employer welfare arrangements (MEWA), and Taft-Hartley trusts, to name a few. Under a fully-insured plan, an insurance company (e.g., UnitedHealthcare) assumes the risk associated with paying employees' covered medical expenses in exchange for monthly per-employee premiums from an employer (e.g., plan sponsor) and its employees (e.g., plan participants).
On the other hand, under a self-insured plan (also called self-funded health plan), a plan sponsor (e.g., an employer, a union) assumes the responsibility of paying employees' covered medical expenses (e.g., claims). Plan sponsors of self-insured plans often contract with a third-party administrator (TPA) to manage the plan (e.g., processing claims). Typically, an insurance company is contracted as a TPA to administer self-insured plans. In addition, many plan sponsors of self-insured plans seek to mitigate the risk of unexpectedly large or catastrophic claims over a certain threshold level by purchasing stop-loss or stop-gap coverage from an insurance carrier.
Under some self-insured plans (commonly referred to as “level funding arrangements”), the plan sponsor pays monthly “premium equivalents,” which are used to pay claims and cover fixed expenses such as stop-loss premiums, TPA fees, PPO access fees and other plan expenses. At the end of each plan year, if there are any funds left over from the plan sponsor's payments, they can either remain in an employer-established account to be used to pay future claims, or be refunded to the plan sponsor.
In some other self-funded arrangements, the employer/plan sponsor pays each medical claim directly as it is billed and remits payment to a health care provider (“provider”) from a dedicated account.